Ulric B. and Evelyn L. Bray Social Sciences Seminar
Abstract: Random utility models in which heterogeneity of preferences is modeled using an ordered collection of utilities, or types, represent a powerful framework for the understanding of a variety of economic behaviors. However, previous theoretical treatments require data that is excessively demanding from an empirical perspective. This paper studies the theoretical foundations of ordered random utility models with the fundamental objective of meeting the standard empirical requirements. We do so by working with arbitrary domains composed of decision problems that are ordered by the structure of the types. We characterize the model by way of two simple properties, and we do so making no parametric assumption on the distribution over the types. We show the generality and applicability of our result by means of a series of extensions and a particularization to decisions under risk. We also propose a goodness-of-fit measure for the model and prove the strong consistency of extremum estimators defined upon it. We conclude by applying the model to a dataset on lottery choices.
Written with Miguel A. Ballester. For the seminar, Professor Apesteguia will be joined by guests Yoram Halevy, Yusufcan Masatlioglu, and Emel Filiz-Ozbay.